Credit card companies 'confusing' consumers

03 February 2006

A consumer watchdog is warning that providers are misleading customers on the true cost of a credit card.

Which? argues that it is extremely difficult for cardholders to calculate which is the cheapest credit card by comparing rates and calls for a change.

It gives the example of cahoot's credit card which has an interest rate of 11.8 per cent, which might seem to offer cheaper borrowing than the 13.9 per cent rate at HSBC. However, Which? says that borrowing the same amount for the same time would cost more with cahoot than HSBC.

This is because the true cost of borrowing is not just dependent on the card's interest rate but when it starts and stops charging interest.

Card companies use 14 different ways to apply interest, which makes it near impossible for consumers to work it which card is the cheapest, according to the watchdog.

"It's ludicrous that a card with a lower interest rate can cost more than one with a higher rate," said Malcolm Coles, editor of Which?.

"Which? wants the credit card industry to use one standard way to charge interest so consumers really can choose the cheapest card."